The team at CurrenC SF has put together an excellent video about the benefits of direct deposits to alleviate the very high costs of check cashing for American workers.
Here it is:
This video Copyright CurrenC SF and the San Francisco Office of Financial Empowerment
Coming soon: DirectDeposit.Center the place that delivers Direct Deposits to All.
From time to time, I am struck by the absurdity of some financial services innovations. Think innovation is about making things better, faster, easier? Not always: here is a list of financial technology innovations that I find wasteful.
In no particular order:
Bitcoins ATMs. Cash is inconvenient because it is physical: to get some, you need to get dressed, perhaps release some carbon dioxide by driving your car, and get to a bank branch or an ATM. By contrast, Bitcoins are purely digital: they don’t need to be physically carried around. So why in the world would you need to go to an ATM in the street or at the mall to get some Bitcoins or deposit some??
Credit card carousels. OK, I’ll admit there is no product called that way, but this is exactly what a product like “Coin” is: a hardware device that holds several cards, and let’s you select which one to use prior to swiping. Loose the device? You loose all the cards. Unlike your regular cards, the device requires a battery. And in the case of Coin, it also needs your smartphone to be next to it. This is a great example of “why keep things simple when you can make them complicated?”
Wireless communication of card magnetic stripe data. Some engineers have decided that swiping your payment card through the slot of a terminal is too tiring, or maybe too unreliable, or so 20th century. So, they have devised contacless ways of passing the mag stripe information to payment terminals so that we may “tap” or “wave” instead of swiping. One version of this is called Near Field Communication or “NFC”. It was first devised in 1994. You would think that after 20 years of attempted deployments, engineers would have figured out that neither merchants nor their customers give a damn about tap/wave-rather-than-swipe. Not so: there is now a new flavor of this, which works farther than the few inches of NFC, and does not require new hardware in the terminal. So what?
Don’t get me wrong: there is plenty to do for engineers to innovate in a tremendously useful (and sometimes urgent) way in financial technology.
- How about fixing the payment card protocol? When you swipe your card, you give your unique payment credentials to the merchant, who then passes them on to a payment network which in turn passes them on to your bank to verify that you have money. For this to work securely, merchants are required to please handle those credentials with extreme care. Ask Target how well that works.
- How about fixing the ACH protocol? The Automated Clearing House protocol handles billions and billions of dollars of electronic funds transfers between banks. Yet it does not include an authentication protocol. Got the destination account number wrong? Too bad, because there is no way to figure this out, other than waiting for the recipient to complain that money was not received where it was being expected. (and don’t get me started on faster ACH transfers).
I guess misguided innovations are a sign of vitality for any industry: many people see opportunities. So this is kind of good news for the “FinTech” world. Let’s keep in mind that not all “opportunities” are solving real problems.
Did you notice? After years of being two separate product lines, prepaid card accounts and checking accounts are merging into a single new offering:
- American Express calls Bluebird “The Checking & Debit Alternative by American Express”
- Simple‘s tag line is “Worry-Free Alternative to Traditional Banking”
- GoBank‘s pitches itself as “A New Kind of Checking Account”
- … and of course, at Plastyc, we have had UPside and iBankUP providing “The Power of a Bank Account in a Phone” for a few years now
All the above products are built from a prepaid card foundation, with multiple add-ons to expand their usefulness, not the least of which is a mobile application that turns customers’ smartphones into mobile checkbooks.
The convergence comes after a number of changes in best practices, regulations and innovations for prepaid cards:
- FDIC “pass-through” insurance applies to individual prepaid card accounts
- Prepaid cards are routable via ACH allows direct deposits and bank transfers
- Cards able to receive federal funds have Reg E consumer protection
- On-demand paper checks enable payments to anyone
- New services like Walmart’s Rapid Reload™ allow cashing checks directly into cards at low costs
- Mobile Remote Deposit Capture allows depositing of paper checks 24×7
This results is an all-around equivalence between checking accounts and prepaid card accounts, from a consumer stand-point.
Even major market players like H&R Block are deploying prepaid-based financial services that provide a full-blown replacement for a checking account: look at the Emerald Card, which is now available with optional access to a line of credit product called Emerald Advance and a Savings accounts
How should banks react to this new market reality? I believe they should think hard about introducing “prepaid as the new checking” if they want to serve more customers at a lower cost.
Below is a set of slides that I am presenting to Financial Institutions during a webinar hosted on January 31 2013 by Andera, to explain how to leverage prepaid cards to deliver checking account services to everyone:
The first version of the Compass Principles is available for download from the Center for Financial Services Innovations’ website.
The principles apply generally to the design of consumer financial products intended to help people in their daily lives.
The first category of financial products to benefit from a detailed implementation of the Compass Principles will be prepaid card accounts.
Here are some of the specific items that my company, Plastyc, will deploy during the next few quarters to implement the Principles:
- Make accounts easier to access with free full-featured Mobile Apps for Android phones , iPhones and Kindle Fire tablets, for consumers who may not have a fixed phone line and PC at home;
- Make accounts easier to open with automatic handling of soft-fails via add-on questions during enrollment, for consumers who may not have easy access to a photocopy and fax machine to send us copies of utility bills to prove their identity;
- Display product fees clearly with typical usage patterns inside a standardized “Fee Box“, to be transparent and reassure customers that we will not hit them with unexpected fees;
- Expand real-time communication with cardholders through mobile push notifications, to allow customers to always stay on top of their finances;
- Reduce time and cost of customer support through contextual interactive help, to avoid lengthy searches through solutions among Frequently Asked Questions;
- Reduce time and cost of customer support through a collection of how-to-videos, to make learning about our services more fun and immediate;
I think that applying good product design principles pro-actively beats any kind of regulation. So kudos to the authors of the Compass Principles whitepaper.
The US Federal Reserve has just released a report about how consumers use mobile financial services.
The full report can be found here.
It contains a substantial section about how the under-banked population uses mobile phones to access financial services.
Just because people are un-banked or under-banked, does not mean that they are “unphoned”.
Mobile phone use is high among younger generations, minorities, and those with low levels of income—groups that are prone to be unbanked or underbanked.Mobile banking and mobile payments have the potential to expand financial access to the unbanked and underbanked by reducing transaction costs and increasing the accessibility of financial
products and services.
Although the report contains some contradictory numbers, it mentions that 91 percent of the underbanked have a mobile phone and 57 percent have a smartphone—rates far above those for the overall population.
As mentioned in an earlier post, we found that over 85% of the UPside Visa prepaid card users have a smartphone.
So we have just deployed a mobile banking application for both Android phones and iPhones.